GST in India v1

Indian Taxation is

COMPLEX

243 Hours per year doing taxes

30+ Number of payments

158 India’s rank for ease in tax payment

Source : World Bank

The biggest tax reform since 1947

GST

Subsume indirect tax levies Integrate state economies

Boost to GDP Growth

Opportunity to reimagine… a SIMPLE and Enterprise

One view on compliance

Transparency

DIGITAL

Speed

Remove Redundancy

Endless POSSIBILITIES Revamp a cumbersome & distributed process… Purchase Order Deliverables Invoice

Buyer

Pay

Seller Sellers Calculate, Aggregate and Remit taxes

Tax Authority

Pre-requisites patch level for GST Implementation

 Tax Procedure – TAXINN

 Minimum Support Pack level – SAP Note no 1175384

GST Timelines Milestones Lok Sabha passes GST bill

Timeline √

Rajya Sabha passes GST bill

Aug, 2015

Ratification by not less than 15 states

Dec, 2015

Formation of GST council

Jan, 2016

Enactment of GST laws

Mar– Dec, 2016

What is Changing? Overseas vendor

Outside India

Overseas service provider

BCD,BCD, CVD,IGST ACD

Service tax IGST

India Vendor

Excise duty, VAT CGST , SGST

Non-Creditable taxes Creditable taxes Customer

Excise CGST

Manufacturer

State A State B Vendor

3

VAT SGST

Institution

Service tax CGST , SGST SerIvGicSeTta x

Service Provider

Service Provider

Customer

Input tax credit under GST 

Illustrative list of Input tax credits currently not available (that might be available under GST):  

Credit on inter state purchases/supply of goods Burnouts on stock transfers and negative list of goods under each state

Service tax credit on freight from the place of removal to the customer and other service tax credits currently not available  Excise credits for all business purchase expenses viz. Sales promotion items, gifts, etc  Luxury tax paid in Hotels  Service tax credits on trading of goods 

 

CVD and SAD on imported goods procured for trading of goods/sales promotion Tax credits on purchase of hardware and software

Treatment of additional tax proposed on inter-state transactions 

States allowed to collect additional tax (not exceeding 1%) on supply of goods in course of inter state trade

 No clarity on availability of input tax credit as well as mechanism for this additional tax  Hon’ble Finance Minister in Lok Sabha has assured that 1% additional tax levied in the course of interstate supply of goods shall have no cascading effect  Additional tax will have to be captured separately at each state level

Structure of GST • Dual GST Levy :

Within the state Supply of Goods & Services : GST = CGST + S GST

• Integrated GST ( I-GST on Imports & Interstate Supply of Goods & Services : To be levied by the Central Govt. .

1. IGST = C GST + S GST 2. Paid in the state of Origin and passed on to Destination State through Clearing House Mechanism .

• 1% Non Creditable Additional tax would be levied on interstate Supply of Goods only

• Levied, collected & Retained by the Origin state , for first two years only . • Adverse Impact on Purchase Costs & Selling prices for first two years .

Input tax credit under GST CGST:

SGST:



Central Excise Duty



VAT / Sales tax

•

Additional Excise Duties



•



•

Excise Duty levied under the Medicinal and Toiletries Preparation Act Service Tax

Entertainment tax (unless it is levied by the local bodies). Purchase tax



Luxury tax

•

Additional Customs Duty - (CVD)



Taxes on lottery, betting and gambling

•

Special Additional Duty of Customs - 4% (SAD) Surcharges and Cesses



Octroi and Entry Tax



State Cesses and Surcharges in so far as they relate to supply of goods and services

•

Centre would levy IGST which would be CGST plus SGST on all inter-State transactions of supply of taxable goods and services

Input tax credit under GST Transaction Purchase of Goods Receipt of Services Imports

Intra State

Inter State

CGST+SGST

IGST

CGST+SGST

IGST

IGST

Separate accounts for each state need to be maintained for CGST, SGST and IGST credits received

Input tax credit under GST

Credit of

Can be utilized against Liability of

CGST

CGST and IGST

SGST

SGST and IGST

IGST

IGST,CGST and SGST



Cross utilization between SGST of one state and SGST of another state not allowed  Credit of taxes paid on petroleum products not available (since it is not a part of GST) 

Refund/adjustment in case of exports, purchase of capital goods, inverted duty structure on output tax to be completed in timely manner

Present Tax Present Indirect Tax (Excise/VAT) System in India Foreign V1

V

Imports Custom Duty + CVD+ SAD

Export 0% ED/CST

Foreign Customer

Transfer ED+0% CST

Depot “B”

Local Sales VAT

Interstate Sales 2% CST – “C” Form

Dealer “B”

Local Sales VAT

Local Sale VAT

Dealer “A”

Local Sales VAT

CST V

VAT

Outside V2

Inter-state Sales (ED + 2% CST (Tax on Tax)

State “A” MFR (Goods ) Taxation

V

CST Local V3

V

VAT

Local Sales ED + VAT (Tax on Tax)

Customer

“B”

Customer

“B”

Customer

“A”

Tax Register - Proposed Solution Proposed Indirect Tax (GST) System in India (C-GST & S-GST) Outside India V1

V

Imports Custom Duty + ( I GST)

I GST

V

GST

Outside V2

Inter-state Supply IGST (C+S-GST)

State “A” MFR. On Supply of Goods & Services

Export 0% GST

Foreign Customer

Inter-state Supply of goods IGST

Depot “B”

Local Supply CGST + SGST

Customer “B”

Dealer “B”

Local Supply CGST + IGST

Customer “B”

Dealer “A”

Local Supply CGST + SGST

Customer “A”

Non Creditable 1% Additional Tax on interstate Supplies

Interstate supply

V

IGST (CST+SGST )

I GST

Local V3

V

C&S GST

Local Supply (CGST + SGST)

Local Supply CGST + SGST

How to take Credit Seamless Flow of Credits in a Supply Chain • 20% GST = 10% C GST + 10% S GST ( Within the state Supply ) , 20% I GST = 10% CGST + 10% S GST (Interstate Supply + Imports )

State A Vendor

( IGST)

State B

State “C”

1% Addl. Tax

150 + 30 IGST

( I GST)

Dealer State “D”

MFR - 2

MFR - 1 1% Add Tax

1OO + 20 IGST

( IGST)

Customer State “D” (GST)

Consuming State

1% Addl Tax

200 + 40 I GST

• Transfers of Credits to receiving states by Clearing House • 1% Non creditable Additional Tax on Interstate Supply of Goods

220 + 44 GST

220 + 44

• Finally , the State D gets the S GST Revenue

Exports

GST & Exports Vendor 1

Vendor 2

Imports ( I GST)

Interstate Supply (I GST)

Exports

Exporter 0% GST

Vendor 3

Local Supply (GST)

Foreign Customer Outside India

TAX Invoice GST Tax Invoice Invoice No. (Serially Numbered)

Date

01 – 04 – 2016

Name (Local Buyer) : Mahindra & Mahindra Ltd. Address : Kandivli (East), Mumbai GST TIN (Tax Payer Identification Number of both – Seller & Buyer)

Sale of Goods ( Auto Parts )

Rs.

Net Supply Price……………………………………………………….……………………… Freight ………………………………………….……………………… 20% GST

100.00 05.00

Net Taxable T.O. …..

105.00

……………………………

10% C GST ……………………………………………………

10.50

---------------------------------

10% S GST ---------------------------------

10.50

Total -------------

126.00

Specific Requirements as per the State C – S GST Acts. Like Certificate, Time of sale, Name & Address of Printer etc. Authorized Signatory

Maximise Input Tax Credit Availment (under GST) 

Identify the tax cost (with respect to taxes that are supposed to merged into GST) in the profit and loss account and start capturing the same so as to enable the business to understand the impact of GST



Identify the existing contracts/PO’s wherein contracts will have to be renegotiated on account of availability of the input tax credit to the vendor as well as the Company and include clauses for facilitation of renegotiating on implementation of GST



Review the current operations/distribution models and evaluate the need for any changes in the operation/distribution models on account of :  Availability of full credit under GST system; and  Impact of additional tax payable on the supply of goods in course of inter state trade

Input Tax Credit Utilization - Solution Approach Configuration Approach •

Each GSTN registration to be created as a Business Place

•

Each Tax Component (CGST, SGST etc.) to be configured as Transaction Key

•

GL accounts can configured for each GST Registration & Tax Component i.e. Business Place & Transaction Key

Goals

Tax Credit can be accumulated at each registration by tax component

Utilization Transaction •

New Transaction to perform utilization

•

Comparison of tax credits available vs. payables by GL Account aggregation

To enable control & transparency in utilization

GSTN Portal

Manufacturers/ Consumers will download data from the GSTN Portal. Suppliers will upload their Sales Data • Mico • Lucas TVs • MRF Tyres

• Mahindra’s • Tata Motors • Ashok Leyland

GSTN Portal

Suppliers will upload their Sales Data which will contain the following information

Sellers GSTIN - Buyers GSTIN

Suppliers will upload their Sales Data

Manufacturers/ Consumers will download data from the GSTN Portal

Sellers Invoice No: Invoice Date: Business Place: Product Category: HSN/SAC Code Gross Value : GST Value:

GSTN Portal

Buyers will download the data from the GSTN Portal • Match the same with the receipt data in their systems. • Identify exceptions – Invoice in GSTN not in ERP • Goods in Transit • Value Mismatch • Material not Received

Suppliers will upload their Sales Data

Manufacturers/ Consumers will download data from the GSTN Portal

• Identify exceptions – Invoice in ERP not in GSTN. • Material received not uploaded by supplier. • Upload the exceptions on to the GSTN Portal. (Unregistered Suppliers)

Features by SAP

Features by SAP • Discrepant Invoices – Value Mismatch • Missing in GSTN • Missing in ERP • Facility to trigger an Email to the supplier

Suppliers will upload their Sales Data

Manufacturers/ Consumers will download data from the PSTN Portal

Assumptions

Assumptions GSTN Authorities will provide • Standard API will be provided for upload download of data, between

ERP & GSTN Portal • System will be capable to manage the humongous volumes Suppliers will upload their Sales Data

Manufacturers/ Consumers will download data from the GSTN Portal

• Compute power of Hana will ease transactions at both ends.

GSTN Process - Registration GST Registration Process • PAN based single registration for CGST, SGST & IGST • Per State registration Different verticals of one business may obtain separate registration • Existing Taxpayers – Transition system for migration • Registration for each premises in a State not required • Addition of place of business under each registration allowed • Transfer of credit to another unit in a different State not allowed

GSTN Common Portal • Common interface between Taxpayers & Tax Authorities where Taxpayers can fill up the online GST Registration form • Upon submission of the GST registration application online at the portal, information would be shared with the State & Central Tax Authority for their approval • Once the registration application is approved by both Registration Certificate (GSTIN) will be issued online at the GST Common Portal

GSTN Process - Returns GST Returns Process • Unified return form for all States/ One Return for CGST, SGST & IGST • All returns to be electronic • Return expected to be Monthly (Quarterly for compounding dealers)/ Annual • All details of sale (invoice wise) to be submitted, purchase details to be populated from sales of counterparty dealers • State specific return as State unit is an independent unit • IGST assessment by State where return is filed

GSTN Common Portal • Interface for GST registered taxpayers to upload their invoice level sales details by a specified cut-off date • Based on the sales details uploaded by the supplier, GSTN Common Portal would auto-draft the purchase statement of the counterparty purchaser on a near real time basis

• Draft return of a taxpayer to be generated at the Common Portal after sales-purchase details are captured

GSTN Process - Payments GST Payments Process • Standardized single challan for CGST, SGST and IGST • Different accounting codes for various types of transactions • Mode of payment of tax can be online or offline (OTC) • Tax to be paid prior to filing GST return • Tax to be paid wherever supply takes place • SGST to go automatically to the State of taxpayer as per registration • Frequency of tax payment as per return

GSTN Common Portal • Taxpayers would be able to calculate their tax liability and make online payments • Based on draft return, taxpayer can prepare challan at the common portal, pay due tax online through banking system before filing the GST return • Electronic challan generation at the portal mandatory in case of manual payments (OTC) as well • All Banks authorized by RBI to be available on GSTN Common Portal

GSTN Process - ITC Mechanism & IGST Settlement GST Cross Credit Utilization • CGST/ SGST/ IGST credit can be utilized for offsetting liability against same heads in that order • CGST/ SGST credit available after offsetting respective liability to offset IGST liability • Credit of CGST cannot be used to offset SGST liability viceversa • Credit of IGST available after offsetting IGST liability to offset CGST/ SGST liability (in order) • IGST on Imports: as per return (not like customs duty)

GSTN Common Portal • To provide Dealer Ledger to view consolidated summary of their tax liability, payment history, ITC entitlement and utilization (set off against tax liability), refunds – anytime on any device

• Invoice matching & communication on discrepancy • Credit Reversal of unmatched transactions in the next return • Calculation of IGST Settlement amount based on cross-utilization of credit by dealers • Intimation of successful settlement to tax authorities

GSTN Ecosystem Integration of existing IT systems with GSTN GSTN IT System

Tax Authority

Centre/ State Tax System

Interface File/ API

CTD Officer

Centre/ State Tax Database Accounting Agencies & Treasuries

Interface File/ API

Taxpayer

GSTN Common

Portal

Interface File/ API

GSTN Database Network of Banks & RBI

Rate of GST- Across the Globe • Rates of GST in other countries are:

FM has assure that the rate of GST will be less than the speculated rate of 27%

Comment: The present indirect tax levy on goods is: 12.5% (Excise Duty) + 14% (VAT)

Rate of GST – Concessions/incentives What would happen to current incentives: • State incentives: - Area based exemptions

- VAT deferment schemes • Central incentives: - Product specific concessions - Area based incentives

Place of supply rules and credit Distribution of accumulated credit at corporate office? • Head office would incur standard costs and accumulate input credit • HO might have Nil or marginal output tax liability Credit utilization dependent on seller declaration? • Auto-drafting of purchase statement of a dealer from the invoice based sales details uploaded by the counterparty dealers Credit on Businesses’ indirect spends by employees?

Transition provisions • Refund, not credit – Accumulated credit at the cut off date cannot be carried forward - Input and input services - CENAVT - Capital goods – CENVAT and VAT - VAT credit • Defer capital expenditure/purchases • Treatment of Way-Bill/ C-Form/ Checkposts • Treatment of Existing Area based Exemptions/ Benefits under State Industrial Policy

• Dual Assessment for the Taxpayer?

GST: Areas of Impact in SAP System Tax Registration

Define GST Registration levels

Master Data Maintenance

Business Partner Tax Data, GST Accounts

Tax Configuration & Computation

Configure Tax and Pricing procedures; Tax computation

Document Numbering

Outgoing Invoice Numbering

Business Process Localization

Extend Support to currently localized Business Processes

GST Tax Postings

GST Input and Output Tax postings

Utilization

Input tax credit utilization against payable for GST Taxes

Reporting

Tax Register

Tax Registration

GSTIN – GST Identification number  Single registration for CGST, SGST and IGST  Individual registration to be obtained in each state of business establishment  PAN based registration number – Up to 15 characters in length

Tax Registration - Proposed Solution Capture GST registration at Business Place level

Master Data Maintenance Business Partner Tax Data  GST reg. no. to be captured for each Registered Customer and Vendor

GST Tax Accounts  Separate tax A/P and A/R accumulation might be required at GST registration level  To be defined for CGST, SGST and IGST separately

Vendor GST Registration- Proposed Solution

Customer GST Registration- Proposed Solution

Tax Account - Proposed Solution Business Place based G/L account determination – Both for MM and SD

Tax Configuration and Computation  Intra-state transactions – CGST and SGST applicable  Inter-state/Import transactions – IGST applicable  Export Transactions – Zero rated  Region level rate variations may exist  New condition types/access sequences and account determination

Tax Configuration and Computation- Proposed Solution Tax Procedure – New Condition Types

Tax Configuration and Computation- Proposed Solution SD Pricing Procedure – New Condition Types

Tax Configuration and Computation- Proposed Solution SD Access Sequence

Tax Configuration and Computation- Proposed Solution MM Access Sequence

Document Numbering Unique sequential numbering for outgoing GST invoices  Criteria for legal numbering may be specified by govt.  It could be for example: – Registration level – Document type (Invoice / Credit Memo) – A combination of above –…

Document Numbering- Proposed Solution Maintain Document Class

Document Numbering- Proposed Solution Assign Document class to Document Types

Document Numbering- Proposed Solution Assign Number Range to Business Place

Business Process Localization  Sales Processes  Procurement Processes  Stock Transfers  Subcontracting  Others

Sales - Proposed Solution Sales Order

Sales - Proposed Solution Billing Document (A/R)

Procurement - Proposed Solution Purchase Order

Procurement - Proposed Solution Vendor Invoice (A/P)

Stock Transfers - Proposed Solution Purchase Order

Stock Transfers - Proposed Solution Replenishment Delivery from sending plant

Stock Transfers - Proposed Solution Outgoing GST Invoice  ‘Consideration’ Value for tax calculation.  Will it be a pure tax Document? Example:

 OR, Will it be a GST Invoice with an account receivable? Example:

Stock Transfers - Proposed Solution Goods Receipt at receiving plant

Stock Transfers - Proposed Solution Incoming GST Invoice  ‘Consideration’ Value for tax calculation.  Will it be a pure tax Document? Example:

 OR, Will it be a GST Invoice with an account receivable? Example:

Subcontracting - Proposed Solution Purchase Order

Subcontracting - Proposed Solution Purchase Order - Components

Subcontracting - Proposed Solution Purchase Order - Taxes

Subcontracting - Proposed Solution Transfer Posting

Subcontracting - Proposed Solution Outgoing GST Invoice  ‘Consideration’ Value for tax calculation.  Will it be a pure tax Document? Example:

 OR, Will it be a GST Invoice with an account receivable? Example:

Subcontracting - Proposed Solution Goods Receipt

Subcontracting - Proposed Solution Incoming GST Invoice  ‘Consideration’ Value for tax calculation.  Will it be a pure tax Document? Example:

 OR, Will it be a GST invoice with an account payable? Example:

GST Tax Postings  Separate accumulation of credit and payables for – CGST – SGST – IGST  Separate accumulation at Registration level  Automatic Tax posting to respective accounts from business processes

GST Tax Postings - Proposed Solution Billing (A/R) Accounting Document

GST Tax Postings - Proposed Solution Vendor Invoice (A/P) Accounting Document

Utilization  Utilization of Input tax credit would be as under – Input CGST to be utilized against output CGST and IGST – Input SGST to be utilized against output SGST and IGST – Input IGST to be utilized against output IGST, CGST and SGST in the order of IGST, CGST and SGST

Input

Output

Utilization - Proposed Solution New Utilization program to handle GST credit utilization

Utilization - Proposed Solution Cross Utilization as per GST rules

Reporting

 Tax register – CGST – SGST – IGST

 Registration level segregation

Tax Register - Proposed Solution

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